Gulf Keystone triples losses in first half as expenses soar

Gulf Keystone, an independent oil and gas exploration and production company with operations in the Kurdistan Region of Iraq, has tripled its losses for the half year ended June 30th as general and administrative expensenses more than doubled on the back of a significant increase in the operational activities as the company's projects expand and mature.

A sharp increase in revenue was seen but was matched pound-for-pound by a rise in sales costs, resulting in no gross profit for both 2011 and 2012.

During the period the firm made further sales of crude oil from the Shaikan -1 and -3 production facility, which generated the increased revenue. The group's net entitlement to sales during the six month period was 367,881 barrels (1H 2011: 37,203 barrels), which more than offset the decline in the average price realised to $42.06 per barrel from $44.23 the previous year. Operating costs, excluding inventory movements, depreciation, depletion and amortisation costs and share based payment charges were $28.07 per barrel (1H11: $29.59 per barrel).

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Gulf Keystone is currently awaiting guidance from the Kurdistan Regional government on further oil sales and continues to work on the Shaikan field development plan which is due for submission to the Shaikan Block Management Committee within 180 days of the Declaration of Commercial Discovery, which took effect on August 1st.

Todd F Kozel, the Executive Chairman and Chief Executive Officer of Gulf Keystone, said: "As an independent explorer and operator in the Kurdistan Region of Iraq, we are proud of our outstanding operating record to date with 15 wells drilled or currently being drilled across the four blocks and ambitious targets consistently being met.

"Since mid-July, we have announced another major upgrade of Shaikan's gross oil-in-place volumes following independent evaluation, completed a very successful appraisal programme of this world-class discovery and declared the field commercial. Gulf Keystone is now in transition from the exploration and appraisal phase to the large-scale staged development and production of the Shaikan field, which will be both challenging and exciting."

Looking at specific assets, the Shaikan discovery, in which the firm has a 75% operating interest, saw an 83% increase in gross oil-in-place numbers with a new range of 12.4bn proven (P90) to 15.0bn possible (P10) barrels, with a mean value of 13.7bn barrels, following independent evaluation.

At Sheikh Adi, in which the firm has an 80% operating working interest, the second exploration well has been drilled to a depth of 2,754 metres and will conduct a well testing programme across seven target zones.

At the Akri-Bijeel asset, in which the firm holds a 20% working interest, data has indicated that the Aqra/Bekme anticline has a range of 2.5bn (P90) to 5.4bn (P10) barrels of gross oil-in-place. The Bijell-3 well is currently being drilled to appraise the discovery of 2.4bn probable barrels of gross-oil-place, as calculated by the operator of the block.

Ber Bahr-1, the first exploration well on the Ber Bahr block, was drilled to a total depth of 3,930 metres and encountered a 300 metre oil column in the Jurassic. The well has been temporarily suspended while a work over rig is moved to the location to conduct a further well test with results expected in the fourth quarter 2012.

Cash, equivalents and liquid investments at the period end totalled $136.9m (30 June 2011: $137.6m and 31 December 2011: $237.6m).

The share price fell 2.04% to 228p by 10:47.

NR